A belated rebalancing of the Chinese economy will lead to a collapse in commodities prices by 2015 according to one of the West’s leading experts on the PRC economy.
Wall Street veteran and Peking University finance professor Michael Pettis ups his bearish outlook on hard commodities, asserting that prices will continue to decline and hit the brink of collapse by 2015.
The core reason is that the surge in demand which induced a global resources boom was the direct result of unbalanced growth in China over the past two decades, and that this unbalanced growth is currently headed for a sharp correction.
Over the past twenty years China’s political helmsmen have neglected to build up domestic consumption while ramping up investment spending in order to build the full sweep of infrastructure required by a modernizing economy.
This trend was further exacerbated by the Great Financial Crisis of 2008, when China’s leaders unveiled a huge stimulus package to lend succour to economic growth as stalwart first-world export markets collapsed.
According to Pettis, the rebalancing of Chinese growth will automatically render its economy far less commodity intensive, stymieing demand and leading to a crumbling of prices.
Even in the unlikely event that the Chinese economy maintains the roaring double-digit growth figures which characterized its performance throughout the noughties, its appetite for commodities is still set to diminish.
Other ancillary factors contributing to the collapse of commodities prices as envisaged by Pettis include China’s excessively high inventory levels, and continued near-term growth in supply due to the long lead-time of production increases pursued during the resource boom’s peak.
8 Comments
Daryl Montgomery
The price history of industrial metals indicates they are more dependent on the state of the economy than on inflation. Gold, silver, energy (minus coal), food commodities are more dependent on inflation. I have covered this matter extensively in Volumes 2 and 3 of “Inflation Investing — A Guide for the 2010s”.
David Brosbell
If
China’s growth slows other economies will fill the gaps. India could be the
next to do just that or a combination of countries.
G.PatinoPatroni
I agree
Jorge
what’s a “re-balancing”? Balancing? Re-re-balancing?
Claude B.
Leading experts often make mistakes. I have plenty of “grain of salt” every time they talk.
Twiggy 2
O
well life will go on. Everybody paints this as the end of the world, when worst
things have happened. Have a bit of optimism, you guys love negativity.
Axel
everyone likes to predict…that’s why such a word exist.
Stockbull
Prediction and education go hand in hand. We have brains….use them before you are stuck with you’re depressed gold holdings upon Countries looking to cash in and use the mass gains accumulated over years to implement structural building and growth.
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